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28 Oct 2020

Econ Digest

The policy of promoting the use of domestic steel will boost domestic steel production while pushing up construction costs of government projects.


For the past several years, Thailand's steel industry has encountered challenges that stem from price competition against steel imports from China due mainly to steel oversupply in China’s market. Since 2014, Chinese steel manufacturers have cleared out their excessive stock via exports to markets including Thailand – one of the world's leading steel importers. The prices of steel bars for construction imported from China during 2014-2019 were lower than domestic steel bars by around 20% on average, resulting in a significant increase in the market share of imports from 8% in 2016 to 40% during 2017-2019. Under such circumstances, Thai steel manufacturers called for the related authorities to step in and continually support the Thai steel industry.


On September 1, 2020, the Thai Cabinet approved the draft Ministerial Regulation No. 2 on supplies and procurement methods of materials that the government wants to promote or support, with an additional Section 9: Materials. The new regulation aims to promote domestically produced materials, particularly steel that must account for 90% of the value or volume used in a construction project. However, the steel must first gain approval from the Thai government to confirm that it was manufactured inside the country. Furthermore, these Thai manufacturers will win the auction for material procurement if their bids are no more than 3% higher than the lowest bid.


KResearch believes that this policy should help to increase domestic steel production by around 360,000 tons annually, for the next 3 years. Such a figure suggests that capacity utilization would rise from 55% to 58.6%. At the same time, it may also cause construction costs of government projects to increase by approximately 0.5-0.8%. ​If this regulation covers public-private partnership (PPP) construction projects, it will result in a higher consumption of domestically produced steel, because large-scale infrastructure projects in recent years have often come in the form of PPP. Nonetheless, as these projects require special types of steel, the use of steel will subject to project contracts and specifications set by the architects who designed these projects.   


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Econ Digest